Liquidations and Receiverships
If your company can no longer pay its debts when they fall due then it may be insolvent and the time has come to wind up the company. A liquidator is a person appointed to the company to wind it up and cause it to be dissolved. The role of the liquidator is to gather and realise the assets of the company in order to pay off the company’s creditors in accordance with priority, and if surplus funds remain to distribute them to the members, before dissolving the company.
There are three main options:
- Creditors Voluntary Liquidation
- Court Liquidation
- Members Voluntary Liquidation
The Creditors Liquidation
This is the most common type of liquidation and is normally started by the company’s directors. There is a formal process to be followed which we will expertly guide you through. The first step is for the board meeting of the directors to be held where it is agreed that the company goes into liquidation and notices to creditors and shareholders will be sent.
To call the creditors meeting ten days notice must be given to all creditors. The meeting must also be advertised in at least two daily newspapers with at least ten days notice.
A Court liquidation is commenced by order of the Court on foot of a petition. This is a formal legal process brought about when a creditor asks the Court to wind up the company. It is sometimes referred to as a Compulsory Liquidation or an Official Liquidation.
The creditor or company must have grounds to present the petition and may therefore use the following:
- Where the company is unable to pay its debts
- Where the Court believes it is “just and equitable to wind up the company”
These are just some of the grounds used.
Members Voluntary Liquidation
Sometimes a company has run its course or the directors may decide to retire. In those circumstances a Members Voluntary Liquidation is often the best and most tax efficient way of releasing any monies in the company.
Normally if monies are released as salaries they attract the marginal rate of interest. Funds released in a Members Voluntary Liquidation are taxed as a capital gain at 25%.
Again there is a formal procedure to be followed which we can expertly guide you through.
A receiver is a person appointed on foot of a debenture or a court order, who is responsible for gathering in the charged assets, realising their value, and applying the proceeds to discharge the debt. He has no general duty to inform the company of how business is going. When the receiver has ceased to act, he must send the register of companies a statement of opinion as to whether the company is solvent.
Investigation of Title Matters
Receiverships arise where:
- A creditor, normally a bank, will have lent money to a company and it will have secured the loan by what is called a debenture. The debenture is simply a document recording the terms of the loan. The debenture will be registered against the companies assets. Should the company default the bank may seek to recover its money by appointing a receiver.
- It is the receivers job to take possession of the assets of the company for the banks benefit. The receiver will then sell those assets to pay the bank back its money.
- Now it would make sense if the receiver instead of closing the business could run it with the idea of increasing the companies value or alternatively selling the business as a going concern.
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